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After the Fed delivered a widely anticipated 25bp rate cut, capping the federal funds target at 4.00-4.25%, markets reacted violently to mixed signals: the FOMC statement acknowledged a weakening job market and rising unemployment, while economic projections forecast inflation to remain elevated and growth modest, creating tension between dovish and hawkish narratives. Powell’s press conference label of the move as a “risk management” cut was initially interpreted as dovish, pushing UST10Y below 4.00%, but later remarks emphasizing inflation risks and uncertainty restored hawkish expectations, spurring yields higher; UST10Y closed at ~4.074% (+~6bp), 2Y at ~3.553% (+~5.8bp). The dot-plot revealed expectations of three more cuts in 2025 versus two previously, while 2026 forecasts dropped to only one further cut, reinforcing the idea that policy easing will be gradual. Overall, the meeting shifted the stance from tight to neutral—but with inflation and employment divergence still anchoring long-term yield upside.

UST10Y eased slightly to ~4.04% from ~4.06% as investors priced in a nearly certain 25 bp Fed rate cut at the upcoming meeting, while short-dated yields fell more modestly, keeping the yield curve modestly steeper. Buy-and-hold demand in longer maturities strengthened, supported by soft labor data and lower inflation pressure, though fiscal risks and heavy Treasury issuance kept upward pressure on term premiums. Fund managers warn political interference with Fed is weighing on credibility, which could push long yields up even in a dovish environment. Markets now look to Fed projections, inflation data and rate-setter commentary for signals on the pace and size of easing.

US CPI for August rose 0.4%m/m and 2.9%y/y, slightly hotter than expected while core CPI held at +0.3%m/m and ~3.1%y/y, with shelter and airline fares pushing headline inflation higher. UST10Y briefly dropped below 4.00% following the release but closed nearer ~4.02% as markets parsed mixed signals; UST2Y held relatively steady amid rising odds of a 25bp Fed cut, contributing to mild curve steepening. Despite sticky inflation, weak labor data and elevated jobless claims bolstered rate cut expectations, offsetting some hawkish concerns. Investors remain focused on Powell’s upcoming remarks and next week’s PPI and payroll revisions for clues on whether the inflation path is truly moderating or merely volatile.

Treasury yields drifted lower as fading labor momentum and inflation concerns bolstered expectations for a September rate cut, with UST10Y around 4.06% and UST2Y edging down toward ~3.56%, causing the 10-2 spread to widen back toward ~50 bp—the highest since early summer. A Reuters poll of bond strategists showed rising consensus for curve steepening in coming months driven by anticipated Fed easing and fiscal strain including tariff and deficit pressures. Term premium was cited as increasingly relevant, especially as long yields have held steady despite short-term rate drops. Investors now await core inflation prints, payroll revisions and Fed commentary to assess whether the disinflation theme holds or whether sticky price pressures and political interference risk derailing the easing narrative.

US CPI for August rose 0.4%m/m vs 0.3% expected and y/y to 2.9% (from 2.7%), core CPI +0.3%m/m, ~3.1%y/y, driven by shelter and transport costs. UST10Y yield dropped to ~4.022% after the release, down ~5-6bp intraday, while UST2Y saw a smaller decline to around ~3.54%, yielding a 10-2 spread near 48-55bp depending on session highs. UST30Y also eased, trading down ~2.4-bp to mid-4.6%s as long-dated yields retreat. The inflation surprise reinforced expectations for a 25bp Fed cut next week; however soft labor indicators and rising jobless claims tempered fears of overheating.

Firmer-than-expected easing in producer inflation reinforced rate-cut expectations, sending UST sharply lower: 10Y dropped to ≈4.045% (−2.9 bp) and 30Y eased ≈2.4 bp, marking the lowest Treasury yields since April, while a $39 bn 10Y auction drew solid demand, aiding yield compression and curve stabilization. Global stocks rallied as inflation concerns waned, with record highs in equity benchmarks supported by dovish Fed sentiment and easing PPI. Markets priced in a near-certain 25 bp cut next week, and the slope of the curve is set to steepen further in coming months amid fiscal uncertainty and elevated term-premium expectations.

UST yields continued their slide as markets digested the surprisingly soft labor data, with 10-year ending around 4.08%, marking a fresh low and down from ~4.05% the previous day, while the 2-year stood lower, hovering near its April lows amid heightened rate-cut expectations; this drove a modest bull-steepening in the curve (10-2 spread at ~54 bp). Safe-haven demand held firm with gold near record highs and global equities rallying, supported by dovish Fed pricing and diminished confidence in fiscal discipline. Investors are now bracing for this week’s CPI and Fed commentary for further policy clarity.

Investor optimism over a Fed rate cut this month—spurred by weak US payrolls data—drove UST lower across the curve, with 10Y ending near 4.05% (−5 bp) and 2Y slipping to ~3.50% as markets priced in up to 50 bp of easing; the 10–2 curve held around 56 bp. Simultaneously, Treasury is ramping ultra-short issuance, hitting a record $100 bn in weekly T-bills as it shifts toward rollable debt, which has helped suppress yields despite rollover risk. Safe-haven demand persisted: gold hovered near record highs and political volatility in Japan and France added uncertainty. With inflation data and a $39 bn 10Y note auction looming, markets brace for more direction on the Fed’s path.

NFP rose just 22k in August vs 75k expected, with prior revised up to 79k, marking a sharp slowdown as manufacturing jobs fell for a fifth month and part-time hiring surged while full-time roles declined. Unemployment ticked up to 4.3% amid lower participation, average hourly earnings eased to 3.7% y/y, and Challenger layoffs plus elevated jobless claims confirmed labor weakness. Despite sticky inflation, Powell has shifted focus toward employment, with markets now pricing a September rate cut and higher odds of follow-ups in Oct and Dec. Fiscal discipline risks and questions over Fed independence remain, while lower-for-longer policy alongside deglobalization could lift term premium later, pressuring long-end yields. UST rallied hard on the data, with 10Y down 8.65bp to 4.0742% after trading 4.30–4.06% and 2Y sliding 7.86bp to 3.5092%, its lowest since 2022; Bund 10Y fell ~6bp and peripherals tightened up to 8bp. No major US data releases are scheduled today.

ISM Services PMI rose to 52, a 6-month high on stronger new orders and business activity, though import prices jumped to 54.6 as firms front-loaded for inflation and holiday demand. In contrast, ADP printed just 54k vs prior 104k and Challenger layoffs surged 39% m/m, aligning with JOLTS weakness and signaling labor market deterioration. The Fed’s Beige Book cited hiring delays amid demand uncertainty, while political noise intensified as Fed nominee Miran backed presidential influence on rates and Trump faced legal challenges. Markets priced deeper cuts, with UST rallying: 10Y fell 5.6bp to 4.161%, 2Y -2.88bp to 3.582%; Bunds eased ~2bp in the long end. Attention shifts to NFP (consensus 75k vs 73k prior) and unemployment at 4.3% vs 4.2%.